Beating The Breadline

Marie Antoinette was possibly framed. The well-known phrase “Let them eat cake” was almost certainly a corruption of a remark made by a previous French queen. Nevertheless, Marie Antoinette lost her head in 1793, the lack of bread was one reason why.

A hundred years later, in the depression-hit New York of the 1890s, the inventor, entrepreneur, and philanthropist Louis Fleischmann donated loaves to the starving poor who waited outside his bakery every evening. It has been suggested that this was where the term ‘breadline’ came from. A hundred and fifty years later, a new study from Legal and General suggests that in Britain today, the average adult would be able to survive less than a month if they lost their source of income.

Here are the key findings from the report.

Employment is still a challenge

Over 600,000 jobs were created in 2013 but by November 2013 only 17% of households felt a greater sense of job security than in November 2012. However, only 16% felt that their level of job security had been reduced. Some 67% felt that their situation was neither better nor worse in terms of security. In terms of actual take-home earnings, however, 4.5% of workers are only able to find part time work, when they wanted to work full time.

Even those with full-time hours will almost certainly be feeling the squeeze. Although the CPI increased 2% in December, annual wage growth as measured in the three months to November was less than 1%. With unemployment running at an average of 7.4% in the three months prior to November, many people are likely to feel they are not in a position to negotiate a pay rise.

Saving has peaked

The financial crisis of 2007/2008 was a turning point for savings. In the first quarter of 2008, the gross savings rate was actually negative. By the second quarter of 2013, households made a gross saving of almost £17 billion. Albeit, the savings rate has still dipped from its peak. In 2009 households saved over 8% of income, however, by the third quarter of 2013 they were saving less than 6%.

There are two potential reasons for this. Firstly is that the continued period of low interest rates and relative stability in the financial sector have reduced the incentive for people to save. Secondly, the cost of living has continued to rise, which has led people to use savings to compensate for the fact that earnings are being outstripped by the CPI. On a positive note, the number of households reporting that they have no savings at all has dropped from 37% in June 2013 to 33% in November 2013.

It would seem 18-24s appear to be getting the savings message, and in this age group the drop was from 52% to 35%. People living in London had the highest rate of savings (most likely due to the reality of the cost of living there), whereas Wales and the North East were at the bottom of the list.

The trip to the breadline is getting, slightly, longer

The deadline to the breadline is the length of time a household could manage before having to rely on state benefits and private or charitable support. Unfortunately, the UK average deadline is just 26 days. The good news is that this is 8 days more than in June 2013. When looking at the overall picture, however, it becomes even more concerning.

Working households aged between 18 and 64 have an average of 11 days worth of savings. Even more concerning, UK households routinely and significantly overestimated how long their savings would last. Overall people believed their savings would keep them going for 72 days, although 35% of people admitted that they had no idea how long they would be able to manage.

Facing the future

It is not surprising that the cost of living towered over all other concerns; with 79% of households agreeing that it was a key concern for them. The next biggest concern was falling income, which surprisingly only reached 47%. Concerns about the effects of interest rate rises are strongest in the 25-34 age group, followed by the 35-44 age group and then the 45-54 age group.

Older people tend to be more concerned over the prospect of continued low interest rates (which tallies with their high savings rates), while 18-24s are split equally between concern about low rates and concern about high ones.

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RM Mortgage Solutions Ltd is an appointed representative of TenetLime Ltd, which is authorised and regulated by the Financial Conduct Authority. TenetLime Ltd is entered on the FCA register (www.fca.org.uk/register) under reference 311266.